By Joy Wiltermuth
NEW YORK, Feb 2 (IFR) - Social Finance seized the recent risk-on wave for consumer-related debt by dramatically pulling in pricing on Thursday on its latest student loan securitization.
The online startup priced the biggest part of its new US$561m bond at 45bp, or 10bp tighter than its prior broadly syndicated deal, according to bankers.
Lower rated tranches came even tighter in a 25bp-40bp range, according to IFR data.
"I think they are really starting to make a name for themselves," said Jason Merrill, a structured analyst at Penn Mutual Asset Management.
SoFi's CFO Nino Fanlo said the new deal attracted more than US$4bn of orders and the participation of about 40 accounts, or double the investor base in SoFi deals sold a year ago.
The new trade also came with the added cache of being the first to carry S&P's top Triple A ratings.
"We are really happy the company is being well-received," Fanlo told IFR.
Its 1.29-year US$218.7m Triple A class came at EDSF plus 45bp. The company priced similar notes at 55bp in mid-November, according to IFR data.
Its riskier 8.88-year class of A(low)/Baa2 notes cleared at 225bp over swaps, whereas similar notes in November came at 265bp, according to IFR data.
Where other online lenders have stumbled, SoFi has built up a platform with a strong bond buyer following.
It has now completed a total of 14 private student loan ABS transactions, according to Moody's Investors Service, which pegged its delinquencies and defaults at just a handful.
And while other startups have cut staff to offset lower originations, SoFi this week announced yet another expansion with its acquisition of mobile lender ZenBanx.
The move puts the company a step closer to offering deposits, credit cards and other payment solutions, in addition to its student loans, mortgages and insurance products, Fanlo said.
TOP OF CROP
SoFi plans to build on its niche of lending to "not rich yet" borrowers with student debt.
The US government provides a backstop for a huge chunk of the roughly US$1.3trn of outstanding US student loans - and SoFi has seized on refinancing its top earners.
Only US$5.7m of SoFi student loans had been charged off from the US$9.2bn pool it had originated as of December 31, according to Moody's.
By contrast, popular payment caps for financially stressed borrowers in the US Department of Education's direct loan program are expected to cost the government US$74.5bn in the fiscal year 2017 as the government shores up missed payments, according to a recent Government Accountability Office report.
Put another way, the subsidies are expected to cost US$21 per every US$100 lent by the direct loans, according to the watchdog's November report.
SoFi's new bond deal, however, refinanced only workers earning an average of US$170,000 annually and with roughly US$7,000 of free cash flow each month after paying their bills, according to DBRS.
"We expect SoFi's borrowers to be more resistant to harsh economic conditions than a typical student loan borrower owing to the pristine credit quality of SoFi borrowers," Moody's said in its presale report.
Morgan Stanley, which structured the new trade, declined to comment. It acted as lead manager with Bank of America Merrill Lynch and Goldman Sachs.
(Reporting by Joy Wiltermuth; editing by Shankar Ramakrishnan)